True or False
1. If you believe that technology stock is going to do very well, you should put all your money in it.
2. A bond is partial ownership in a company.
3. When the market is down, pull back on investments.
4. It is possible to make money when a stock loses value.
1. False: The questions you need to ask yourself are “What if I am wrong?” “What if the circumstances change?” Putting all your eggs in one basket is a poor practice in investing.
2. False: A bond is money borrowed from a bond holder that a company or government entity repays with interest.
3. False: This is the opposite of what an investor does. An investor buys a stock when the price is low, and sells when the price is high. Good investors understand that there are times when the market drops.
4. True: This is called going “short” on a stock. If you short-sell a stock, you are borrowing a stock from someone who owns it with the promise to return it. You sell that person’s stock at today’s price (say $10) and when the stock drops, you buy it back at that day’s price (say $8), and you get to keep the $2.